Self Directed Trusts - Buying Property

[BobbyFowler]

I came across this article recently.

http://www.unison.ie/business/stories.php3?ca=415&si=1698745

The main bit I wanted to focus on was this....

"The real advantage to self-directed trusts, which were introduced by Charlie McCreevy in the 2004 Finance Bill, is that you can use the trust to borrow money. In other words, you can use the money on which you get full relief to borrow up to three times the amount invested. That means, of course, that many people use their trusts as a very tax-efficient form of property investment, so long as it is for investment and not personal purposes.
All repayments are tax-free because they are considered pension contributions, rental income is also tax-free, there is no capital-gains tax and you can bequeath the trust in your will. So, there is no income tax, corporation tax or capital-gains tax payable on these trusts. The only time tax becomes payable is when you retire. But even then 25 per cent of the fund can be taken tax-free or 150 per cent of salary"

I've got my own company - I'm the sole employee.

At the moment I've got 26K in a pension fund, 37K in savings & I'm due 23K this month from the SSIA.

Has anyone out there availed of this option & gone down the property route? As there appears to be value to be had abroad, is it straightforward to have 50K-60K in such a fund and then go ahead & purchase? I've seen investment syndicates where you put in a min 100K to buy property in Berlin. Can I go down this route or does it have to be an actual property purchase? I'm at the stage now where I've a few quid I could put this way, so I'd apprecate a bit of info.....

 

[snowflake]

Hi Bobby,
I'm in the exact same position myself. I am an employee in my own company, and plan to transfer the money I have in my pension into a self-administered pension, which I understand is straight-forward to do. My business advisor has said that self-administered would be the most tax-efficient method for me and my partner to invest in property. I don't know all the ins and outs of it - but will impart what I know! When I was looking into it, what I was told is that you would want to be making a significant contribution into the pension fund in order for the fees for a self-administered fund to be worthwhile (my business advisor said roughly 150k in the fund in order for you to be in a break-even situation, although I am going to find out what the situation is if you have borrowed to invest). One thing I do remember is that because they are strict about the property being let out at 'arms length' and not for personal use, I think they were restrictive about investing in property abroad - from memory I think it was only Ireland and UK property - although I will have to check that out again. I am going to be in touch with my pension advisor in the next few weeks and will post any new information I have, I know there is a lot of extras to it, such as the properties need to be valued etc. so I will be doing a lot of research before going ahead. I'm not an expert, but I would check if you are better off putting money direct from the company into the fund, rather than your personal savings which you have already paid tax and prsi on (Ik know you can claim it back in your personal tax return, but would you be saving on corporation tax?)

 

[BobbyFowler]

Cheers for that Snowflake. All sounds good, apart from the 150K Break Even amount. It's a bit out of my range at the mo. I'll keep investing here & there, keeping an eye out on how this develops.

 

[F. Kruger]

If the property is in Ireland you should also look into the possibility of just doing a pension mortgage. I would be doubtful if Self Directed would be suitable to either of you at the present moment in time due to the size of your funds.

The notion of Self Directed sounds great, but more often than not it is not practical.

 

[G123]

A Self Directed fund uses an off-the-shelf pension contract and so is more suitable for a smaller investor as the annual cost is a % of the fund. ( Rule of thumb, a self administered scheme costs a flat say €5k per annum.) Depending on your contribution there is a cut-off where one makes more sense than the other.

In my personal experience, I bought a property in the UK for €200k (£130k). To fund this I needed almost €60k in my pension fund.

Hope this helps.

 

[snowflake]

I am interested in how you went about purchasing the property in the UK through self-directed, as this is something I was thinking of. I find it hard to get clear information about self-directed. For instance does the fund need to be audited? Or once you pay the annual fee to the trustee, is everything else pretty straighforward?

Also would be interested to hear what part of UK you invested in - we were thinking of London as we know a few people there - but would be interested in hearing how other parts are for investing.

my long term plan is to put as much surplus company funds into my self-directed pension and retire early at 50 with hopefully a few properties in my retirement fund - is there any snags to this?

 

[G123]

Talk to your Broker about Self Directed Trusts. Costs are higher than a regular pension so make sure you get a 'cashflow' outlining what your expected outlay is likely to be, particularly in the first few years.

Based on your pension funds I would probably stay away from London at present. Prices there have gotten very high and I would be suspicious about any 'bargains' - where exactly are they?

I bought in North England two years ago in Leeds. The market value is only +5% approx since then so nothing like here. However i'm taking the longer view.

What about Belfast or Derry? If you live in Dublin there is a nice train service - take a long weekend and do your homework.

Best of Luck